Assessing Vehicle Total Loss Trends

A rise in vehicles declared as total losses has been a continuous problem in the collision repair industry for a number of years. According to Susanna Gotsch, industry analyst at CCC Information Services, that trend is expected to continue throughout 2014.

While that trend increases, similar data shows that customer satisfaction ratings drop significantly when a car is deemed a total loss versus a repairable vehicle.

Gotsch recently discussed the trend with FenderBender and offered ideas on how to combat potential customer dissatisfaction.

What do you see happening for total loss claims frequency in 2014?

Over the last decade, total loss frequency has increased while overall claim frequency rate has declined. In 2000, about 9 percent of all appraised vehicles were a total loss. In 2014, this number has grown to 14.29 percent. In addition, if you take into account obvious totals where no appraisal was written, the industry-wide total loss percentage trends about 3-4 percent higher to nearly 19 percent.

What are the drivers behind this continued trend?

The largest, single-most driver of increase in total loss frequency is that we have an older fleet of vehicles on the road than we’ve ever had. That’s been increasing year over year. The total loss frequency is highest for vehicles aged seven years or more, so a growth in volume share of these vehicles from 32 percent in 2004 to 46 percent in 2013 is the primary factor for driving up total loss frequency.

If I have to say the second-most driver, it’s, to a certain extent, high used-vehicle prices. I say that with a caveat. If you look at total losses in the insurance industry, it comes down to an economical decision where the overall cost to total the vehicle ends up being roughly equivalent to the cost of repair plus the cost of rental. When you think about what that means, the cost of repair and the value of the vehicle have to be relatively close. Where that happens most is in older-model-year vehicles. Because the value of a vehicle declines, there’s a natural depreciation that occurs.

What would it take for a decrease in total loss claims to occur?

Right now, if you look at the marketplace, the new vehicle market is recovering. Analysts are saying it’s going to be between 16 and 16.2 million vehicles this year. But what’s happening is that you have a lot of customers who are also leasing vehicles, which has seen an increase recently.

What is expected to soften this year is the pricing on the newest model year vehicles. Most of those vehicles, when you’re looking at a claim, don’t get close to being a total. You have to sustain an immense amount of damage to get to $24,000 in repairs. So even though we’ve seen used-vehicle prices stay high, that will continue to help reduce the number of total losses because it does take a little bit longer to hit that threshold.

That being said, with repair costs seeing modern increases as well, it doesn’t necessarily mean that the used-vehicle pricing will help to reduce the total loss frequency significantly. When you look at what drives total loss frequency, it’s the age of the vehicle and the older fleet. Unfortunately, there’s not a quick remedy for that.

Polk did a recent forecast that for all U.S. vehicles in operation through 2018, we will see a significant increase in vehicle ages 0–5 years, a 20 percent decline in vehicles ages 6–11 years and a moderate increase of 11.6 percent for vehicles aged 12 years or more. That will certainly help turn over that generation of vehicles that is driving up total loss trends.

How is customer satisfaction affected when a car is deemed a total loss versus a repairable vehicle?

The data that we have is consistent with other sources that have shown that when insurance carriers talk about their own internal measurements of customer satisfaction, most of the data points to a significantly lower customer satisfaction rating when the vehicle is totaled versus when it’s repaired. Obviously the bad news is, if you have a customer that’s driving a 10-year-old car, they may not have the economic means to replace it. Telling them their vehicle is a total is difficult.

Is there anything shops can do to work with customers or insurance companies to use this information as educational tools?

From a repairer perspective, I think the challenge is that a lot of customers have no idea what their car is worth. Something that a repairer could do is if a customer were to come in, to look at the damage and assess it. Someone who has been estimating cars for a while can tell pretty quickly whether that vehicle is going to require a lot of repair, from a cost perspective.

The more the repairer can help the customer understand the process, even up front, the better. For example, explain to them that there’s an evaluation that’s done to determine what it’s going to cost to repair this vehicle and depending on your auto policy, you’re going to have to determine if it goes over the state threshold and if the economics point to a total loss. Having that conversation up front is important so the consumer has some time to digest that before the appraisal and they potentially go down that path.

I think this kind of data can be a way for shops to work with the carrier to identify means to reduce the cost of the repairs. To be clear, I’m not suggesting that the shop not get paid for their work, but using alternative parts, for example, the shop can do a quality repair but can do it in a manner that might cost a bit less and keep it from being totaled. For example, are there some things that could be done in the repair itself to help keep the repair cost in check? Are there alternatives they could look at, such as recycled parts versus OE parts? Could they consider repair versus replace options?

There are also a number of carriers that provide services for the customer to use to find a replacement vehicle as part of the total loss valuation process. It’s usually a setup where they can get a prenegotiated price. If it appears that the vehicle is a likely loss, it could be valuable for a repairer to find out from the insurance adjuster ahead of time if they provide that kind of a service. That way, the shop could put that out there as an option to the customer. Sometimes these types of resources might get suggested by the insurance company, but in the process of getting all the paperwork signed over, it gets missed by the consumer. It’s a way for your shop to not only soften the blow, but also act as a resource for the customer.